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Pall Corporation Reports Second Quarter Results

Wednesday, February 27, 2013 5:23 PM


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

Second Quarter and Six Months Continuing Operations Sales and Earnings Overview(1)

Second quarter sales were $662.5 million compared to $640.0 million last year, an increase of 3.5%. Sales in local currency (“LC”) were up 3.9% year over year. Diluted EPS were $0.70 in the quarter, compared to $0.63 last year. Pro forma diluted EPS(2) were $0.73 compared to $0.67 last year, an increase of 9.0%. Foreign currency translation negatively impacted second quarter EPS by $0.01.

For the six months, sales were flat year over year (+1.9% in LC). Diluted EPS were $1.48 in the six months, compared to $1.14 for the same period last year. Pro forma EPS were $1.41, a 6.0% increase compared to $1.33 a year earlier, including a negative impact of approximately $0.04 from foreign currency translation.

Larry Kingsley, Pall President and CEO, said, “Life Sciences continued to perform well, with all three markets achieving solid sales growth. BioPharmaceuticals in particular had a strong quarter. The Industrial segment continues to face the headwinds that we characterized last quarter. Some end markets are down year-over-year and others are flat. The exception in the segment is Aerospace, which grew double digits in the quarter.”

Life Sciences – Second Quarter Highlights

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

Sales:

JAN. 31, 2013 JAN. 31, 2012

%

CHANGE

% CHANGE IN

LC

BioPharmaceuticals $ 218,775 $ 201,647 8.5 9.0
Food & Beverage 56,948 53,366 6.7 7.6
Medical   53,459   44,218 20.9 21.4
Total Life Sciences segment $ 329,182 $ 299,231 10.0 10.6
 
Gross profit $ 192,136 $ 177,683
% of sales 58.4 59.4
Segment profit $ 82,477 $ 78,088
% of sales 25.1 26.1
 

BioPharmaceuticals: Within BioPharmaceuticals, our Pharmaceuticals sales increased 11%. Consumables sales to Pharmaceuticals customers grew 14%. Continued strength in the biotech market, as well as a strong contribution from ForteBio, drove consumables sales growth. Systems sales were down 11%. Laboratory sales were down 6% overall, on weakness in the Americas and Europe.

Food and Beverage: Consumables sales were up 5%. This reflects strong consumables sales growth in the Americas, due in part to Latin America and accompanied by solid growth in Asia. Europe continued to be affected by lower beer and wine production levels. Overall systems sales grew about 20%, with contributions from all regions.

Medical: Medical grew on strong sales in the OEM market and blood media. Hospital Critical Care contributed solid growth as well.

Industrial – Second Quarter Highlights

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

Sales:

JAN. 31, 2013 JAN. 31, 2012

%

CHANGE

% CHANGE IN

LC

Process Technologies $ 200,435 $ 211,654 (5.3 ) (5.1 )
Aerospace 64,287 54,959 17.0 16.5
Microelectronics   68,551   74,203 (7.6 ) (6.5 )
Total Industrial segment $ 333,273 $ 340,816 (2.2 ) (1.9 )
 
Gross profit $ 149,827 $ 160,482
% of sales 45.0 47.1
Segment profit $ 48,104 $ 48,129
% of sales 14.4 14.1
 

Process Technologies: Machinery & Equipment sales were down almost 8%. In-plant sales declined due to weak end-market demand in Europe and Asia, despite strength in the Americas. In addition, the heavy off-road equipment market was soft globally.

Sales in Fuels & Chemicals were flat as growth in the Americas and Asia was offset by a decline in Europe.

Power Generation sales decreased 1% on weakness in both capital spend in Europe and the wind turbine market in China.

Municipal Water sales declined 19% primarily on weakness in the Americas, as capital spending pressure and project delays impacted results.

Aerospace: Commercial Aerospace sales increased about 39%, on strength in all three regions. Fulfillment of past due backlog also contributed. Military Aerospace sales were flat year over year.

Microelectronics: The year over year result reflects continuing global weakness in semiconductor and data storage end markets.

Conclusion/Outlook

Kingsley concluded, “As we factor in first half performance and what we are hearing from our customers, our view is generally consistent with what we said last quarter. We still expect overall revenue for the full year to have flat-to-low single digit growth excluding FX, and full year pro forma EPS to be in the range of $2.95-$3.15(2).”

Conference Call

On Thursday, February 28, 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 second 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 March 12, 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). 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 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)
         
JAN. 31, 2013 JUL. 31, 2012
 
Assets:
 
Cash and cash equivalents $ 870,232 $ 500,274
Accounts receivable 580,031 655,436
Inventories 404,651 364,766
Other current assets 185,242 195,464
Assets held for sale  

-   

  136,517

 (3)

Total current assets   2,040,156   1,852,457
 
Property, plant and equipment 764,182 750,993
Other assets   648,755   744,442
Total assets $ 3,453,093 $ 3,347,892
 
Liabilities and Stockholders' Equity:
 
Short-term debt $ 235,421 $ 205,393
Accounts payable, income taxes and other current liabilities   568,057   646,735
Total current liabilities 803,478 852,128
 
Long-term debt, net of current portion 474,492 490,706
Deferred taxes and other non-current liabilities   471,550   495,023
Total liabilities 1,749,520 1,837,857
 
Stockholders' equity   1,703,573   1,510,035
Total liabilities and stockholders' equity $ 3,453,093 $ 3,347,892
 
 
PALL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Amounts in Thousands, Except Per Share Data)
             
SECOND QUARTER ENDED SIX MONTHS ENDED
JAN. 31, 2013 JAN. 31, 2012 JAN. 31, 2013 JAN. 31, 2012
 
Net sales $ 662,455 $ 640,047 $ 1,290,055 $ 1,291,309
Cost of sales   320,492     301,882     621,009     617,792  
Gross profit   341,963     338,165     669,046     673,517  
% of sales 51.6 % 52.8 % 51.9 % 52.2 %
Selling, general and administrative expenses 206,009 209,576 401,974 417,756
% of sales 31.1 % 32.7 % 31.2 % 32.4 %
Research and development   23,399     20,050     45,974     39,571  
Operating profit 112,555 108,539 221,098 216,190
% of sales 17.0 % 17.0 % 17.1 % 16.7 %
Restructuring and other charges ("ROTC") (a) 4,399 5,156 8,673 28,140
Interest expense, net (c)   6,017     5,386     5,449     11,331  
Earnings from continuing operations before income taxes 102,139 97,997 206,976 176,719
Provision for income taxes (b)   21,820     23,351     37,492     42,421  
Net earnings from continuing operations $ 80,319 $ 74,646 $ 169,484 $ 134,298
Earnings/(loss) from discontinued operations, net of income taxes   (3,549 )   10,083     246,758     19,886  
Net Earnings $ 76,770   $ 84,729   $ 416,242   $ 154,184  
 
Average shares outstanding:
Basic 112,420 116,196 113,398 115,997
Diluted 113,809 117,914 114,784 117,555
 

Earnings/(loss) per share:

From continuing operations:
Basic $ 0.71 $ 0.64 $ 1.49 $ 1.16
Diluted $ 0.70 $ 0.63 $ 1.48 $ 1.14
 
From discontinued operations:
Basic $ (0.03 ) $ 0.09 $ 2.18 $ 0.17
Diluted $ (0.03 ) $ 0.09   $ 2.15   $ 0.17  
 
Total
Basic $ 0.68 $ 0.73 $ 3.67 $ 1.33
Diluted $ 0.67   $ 0.72   $ 3.63   $ 1.31  
 

Pro forma diluted earnings per share:

From continuing operations $ 0.73   $ 0.67   $ 1.41   $ 1.33  
 
 
PALL CORPORATION
RECONCILIATION OF PRO FORMA EARNINGS
(Unaudited)
(Amounts in Thousands, Except Per Share Data)
                 
SECOND QUARTER ENDED SIX MONTHS ENDED
JAN. 31, 2013 JAN. 31, 2012 JAN. 31, 2013 JAN. 31, 2012
 

Pro forma earnings reconciliation from Continuing Operations

Net earnings from continuing operations as reported $ 80,319 $ 74,646 $ 169,484 $ 134,298
Discrete items:
ROTC, after pro forma tax effect (a) 3,122 3,965 6,962 21,721
Tax adjustments (b)

-  

-  

(10,193 )

-  

Interest adjustments, after pro forma tax effect (c)

 

-  

 

-  

  (4,268 )  

-  

Total discrete items   3,122   3,965   (7,499 )   21,721
Pro forma earnings from continuing operations $ 83,441 $ 78,611   161,985     156,019
 
FISCAL YEAR
SECOND QUARTER ENDED SIX MONTHS ENDED 2013 (ESTIMATE
JAN. 31, 2013 JAN. 31, 2012 JAN. 31, 2013 JAN. 31, 2012 AT MIDPOINT)
 
Diluted earnings per share from continuing operations as reported $ 0.70 $ 0.63 $ 1.48 $ 1.14 $ 3.12
Discrete items:
ROTC, after pro forma tax effect (a) 0.03 0.04 0.06 0.19 0.06
Tax adjustments (b)

-  

-  

(0.09 )

-  

(0.09 )

Interest adjustments, after pro forma tax effect (c)

 

-  

 

-  

  (0.04 )  

-  

  (0.04 )
Total discrete items   0.03   0.04   (0.07 )   0.19   (0.07 )
Pro forma diluted earnings per share from continuing operations $ 0.73 $ 0.67 $ 1.41   $ 1.33 $ 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 and six months ended January 31, 2013 of $4,399 ($3,122 after pro forma tax effect of $1,277) and $8,673 ($6,962 after pro forma tax effect of $1,711), respectively primarily includes severance costs related to the Company's structural cost improvement initiatives.

ROTC in the quarter and six months ended January 31, 2012 of $5,156 ($3,965 after pro forma tax effect of $1,191) and $28,140 ($21,721 after pro forma tax effect of $6,419), respectively, includes expenses related to the Company's cost reduction initiatives, primarily in the Industrial segment and certain employment contract obligations. ROTC in the six months was partly offset by a gain on the sale of an investment.

(b) Provision for income taxes in the six months ended January 31, 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 six months ended January 31, 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)
       
SIX MONTHS ENDED
JAN. 31, 2013

(4)

JAN. 31, 2012

(4)

 
Net cash provided by operating activities $ 89,382   $ 203,983  
 
Investing activities:
 
Acquisitions of businesses

-  

(25,669 )
Capital expenditures (42,403 ) (94,285 )
Proceeds from sale of assets 542,088 19,856
Other   1,062     (9,620 )
Net cash provided/(used) by investing activities   500,747     (109,718 )
 
Financing activities:
 
Dividends paid (52,634 ) (40,274 )
Borrowings/(repayments) of notes payable and long-term borrowings 29,800 (75,169 )
Purchase of treasury stock (250,000 )

-  

Other   33,049     18,719  
Net cash used by financing activities   (239,785 )   (96,724 )
 
Cash flow for period 350,344 (2,459 )
Cash and cash equivalents at beginning of year 500,274 557,766
Effect of exchange rate changes on cash   19,614     (27,403 )
Cash and cash equivalents at end of period $ 870,232   $ 527,904  
 
 

Free cash flow:

Net cash provided by operating activities $ 89,382 $ 203,983
Less capital expenditures   42,403     94,285  
Free cash flow $ 46,979   $ 109,698  
 
 
PALL CORPORATION
SUMMARY SEGMENT PROFIT BY SEGMENT FROM CONTINUING OPERATIONS
(Unaudited)
(Dollar Amounts in Thousands)
             
SECOND QUARTER ENDED SIX MONTHS ENDED
JAN. 31, 2013 JAN. 31, 2012 JAN. 31, 2013 JAN. 31, 2012
 

Life Sciences

Sales $ 329,182 $ 299,231 $ 629,133 $ 600,985
Cost of sales   137,046     121,548     261,043     245,089  
Gross profit 192,136 177,683 368,090 355,896
% of sales 58.4 % 59.4 % 58.5 % 59.2 %
 
Selling, general and administrative expenses 94,414 87,341 185,319 174,407
% of sales 28.7 % 29.2 % 29.5 % 29.0 %
Research and development   15,245     12,254     30,452     23,684  
Segment profit $ 82,477   $ 78,088   $ 152,319   $ 157,805  
% of sales 25.1 % 26.1 % 24.2 % 26.3 %
 

Industrial

Sales $ 333,273 $ 340,816 $ 660,922 $ 690,324
Cost of sales   183,446     180,334     359,966     372,703  
Gross profit 149,827 160,482 300,956 317,621
% of sales 45.0 % 47.1 % 45.5 % 46.0 %
 
Selling, general and administrative expenses 93,569 104,557 184,564 209,970
% of sales 28.1 % 30.7 % 27.9 % 30.4 %
Research and development   8,154     7,796     15,522     15,887  
Segment profit $ 48,104   $ 48,129   $ 100,870   $ 91,764  
% of sales 14.4 % 14.1 % 15.3 % 13.3 %
 

Consolidated:

Segment profit $ 130,581 $ 126,217 $ 253,189 $ 249,569
Corporate services group   18,026     17,678     32,091     33,379  
Operating profit 112,555 108,539 221,098 216,190
% of sales 17.0 % 17.0 % 17.1 % 16.7 %
ROTC 4,399 5,156 8,673 28,140
Interest expense, net   6,017     5,386     5,449     11,331  
Earnings from continuing operations before income taxes $ 102,139   $ 97,997   $ 206,976   $ 176,719  
 
 
PALL CORPORATION
SUPPLEMENTAL SEGMENT SALES INFORMATION BY MARKET AND REGION
FROM CONTINUING OPERATIONS
(Unaudited)
(Dollar Amounts in Thousands)
         
EXCHANGE % CHANGE
RATE IN LOCAL
SECOND QUARTER ENDED JAN. 31, 2013 JAN. 31, 2012 % CHANGE IMPACT CURRENCY
 

Life Sciences

|-------------- Increase/(Decrease) -------------|

By Market:
BioPharmaceuticals $ 218,775 $ 201,647 8.5 $ (934 ) 9.0
Food & Beverage 56,948 53,366 6.7 (495 ) 7.6
Medical   53,459   44,218 20.9   (211 ) 21.4
Total Life Sciences $ 329,182 $ 299,231 10.0 $ (1,640 ) 10.6
 
By Region:
Americas $ 104,018 $ 84,014 23.8 $ (789 ) 24.8
Europe 159,360 152,027 4.8 603 4.4
Asia   65,804   63,190 4.1   (1,454 ) 6.4
Total Life Sciences $ 329,182 $ 299,231 10.0 $ (1,640 ) 10.6
 
 

Industrial

By Market:
Process Technologies $ 200,435 $ 211,654 (5.3 ) $ (523 ) (5.1 )
Aerospace 64,287 54,959 17.0 245 16.5
Microelectronics   68,551   74,203 (7.6 )   (807 ) (6.5 )
Total Industrial $ 333,273 $ 340,816 (2.2 ) $ (1,085 ) (1.9 )
 
By Region:
Americas $ 105,636 $ 104,726 0.9 $ (732 ) 1.6
Europe 105,502 106,374 (0.8 ) 928 (1.7 )
Asia   122,135   129,716 (5.8 )   (1,281 ) (4.9 )
Total Industrial $ 333,273 $ 340,816 (2.2 ) $ (1,085 ) (1.9 )
 
 
PALL CORPORATION
SUPPLEMENTAL SEGMENT SALES INFORMATION BY MARKET AND REGION
FROM CONTINUING OPERATIONS
(Unaudited)
(Dollar Amounts in Thousands)
         
EXCHANGE % CHANGE
RATE IN LOCAL
SIX MONTHS ENDED JAN. 31, 2013 JAN. 31, 2012 % CHANGE IMPACT CURRENCY
 

Life Sciences

|-------------- Increase/(Decrease) -------------|
By Market:
BioPharmaceuticals $ 421,352 $ 397,659 6.0 $ (9,850 ) 8.4
Food & Beverage 106,534 109,385 (2.6 ) (3,097 ) 0.2
Medical   101,247   93,941 7.8   (2,082 ) 10.0
Total Life Sciences $ 629,133 $ 600,985 4.7 $ (15,029 ) 7.2
 
By Region:
Americas $ 201,816 $ 174,738 15.5 $ (1,525 ) 16.4
Europe 303,025 305,905 (0.9 ) (10,856 ) 2.6
Asia   124,292   120,342 3.3   (2,648 ) 5.5
Total Life Sciences $ 629,133 $ 600,985 4.7 $ (15,029 ) 7.2
 

Industrial

By Market:
Process Technologies $ 398,969 $ 425,939 (6.3 ) $ (7,597 ) (4.5 )
Aerospace 122,722 111,592 10.0 (806 ) 10.7
Microelectronics   139,231   152,793 (8.9 )   (2,168 ) (7.5 )
Total Industrial $ 660,922 $ 690,324 (4.3 ) $ (10,571 ) (2.7 )
 
By Region:
Americas $ 210,309 $ 213,791 (1.6 ) $ (1,469 ) (0.9 )
Europe 204,179 205,487 (0.6 ) (6,802 ) 2.7
Asia   246,434   271,046 (9.1 )   (2,300 ) (8.2 )
Total Industrial $ 660,922 $ 690,324 (4.3 ) $ (10,571 ) (2.7 )
 

(Source: Business Wire )
(Source: Quotemedia)

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