Sigma-Aldrich Q1 Earnings Top, Backs View - Analyst Blog

Lab chemical and life sciences company Sigma-Aldrich SIAL posted higher profits in first-quarter 2014 as increased sales across Applied and SAFC Commercial segments offset a decline in its larger research business, which was hurt by harsh winter weather.

The Missouri-based company's profit, as reported, moved up roughly 3% year over year in the reported quarter to $126 million or $1.05 per share from $122 million or $1.01 per share a year ago.

Barring restructuring charges, earnings were $1.06 per share in the quarter, topping the Zacks Consensus Estimate of $1.03.

Revenues and Margins

Sales for the quarter went up 2% year over year to $689 million, but missed the Zacks Consensus Estimate of $695 million. Organic sales gain in the quarter was 3%, while divestitures had an unfavorable impact of 1%.

Operating income rose roughly 5% year over year to $174 million. Adjusted operating margin for the reported quarter was 25.4%, up from 24.6% recorded a year ago, aided by favorable impact of the company's global supply gain initiatives.

Segment Highlights

Research Chemicals division's sales fell 1% year over year to $359 million in the quarter. The division was affected by bad weather that led to closure of research labs by many of Sigma-Aldrich's customers. Gains were witnessed across Europe, Middle East and Africa (EMEA) and Latin America while sales fell in the U.S. on weak academic spending.

Applied unit's sales rose 8% (7% organically) to $171 million. The gain was driven by high single-digits rise on an organic basis in diagnostics and testing business. Sales increased in the mid single-digits in the industrial business.

Sales from the SAFC Commercial segment went up 3% to $159 million. Sales rose in the low single-digits organically in life science products business while life science services saw a double-digit rise on gains in biopharma services. However, Hitech sales declined in the low single-digits on pricing pressure.

Financials

Sigma-Aldrich exited the quarter with cash and cash equivalents of $727 million, up 54% year over year. Long-term debt was flat year over year at $300 million. Debt-to-capital ratio was 10% as of Mar 31, 2014, compared with 13% as of Mar 31, 2013. Operating cash flow rose around 12% year over year to $172 million in the quarter.

Sigma-Aldrich repurchased 900,000 shares during the reported quarter for $85 million. It expects to continue to buyback shares to offset dilution associated with stock-based compensation.

Outlook

Sigma-Aldrich backed its sales, earnings and cash flow guidance for 2014.  The company continues to expect adjusted earnings per share in the range of $4.30 to $4.40. The current corresponding Zacks Consensus Estimate is $4.36.

Moreover, the company envisions low-to-mid single-digit overall organic sales gain in 2014. It continues sees low-to-mid single-digit gain in its Research Chemicals unit. Sales in Applied and SAFC Commercial divisions are expected to rise in the mid-single digits.

Operating cash flow for 2014 has been projected to exceed $600 million. Free cash flow for the year has been forecast to exceed $475 million Capital expenditures are expected to be around $130 million for 2014. Adjusted operating income margin has been projected to increase by roughly 50 basis points.

Sigma-Aldrich is a Zacks Rank #3 (Hold) stock.

Other companies in the specialty chemicals space worth considering are Globe Specialty Metals, Inc. GSM, International Flavors & Fragrances Inc. IFF and Rockwood Holdings, Inc. ROC. All of them carry a Zacks Rank #2 (Buy).