PerkinElmer Beats on Q1 Earnings - Analyst Blog

PerkinElmer, Inc. PKI posted adjusted earnings per share of 46 cents in the first quarter of 2014, surpassing the Zacks Consensus Estimate by 3 cents as well as the year-ago level of 36 cents by 27.8%. On a reported basis, PKI posted earnings per share of 30 cents for the quarter, edging past the year-ago reported earnings of 28 cents by 7.1%.

Revenues in the quarter went up 5.2% to $531.9 million and were almost in line with the Zacks Consensus Estimate of $531.0 million. Including purchase accounting adjustments, total revenues increased 5.1% to $533.4 million in the quarter.

Segment Results

Revenues from the Human Health segment went up 6.5% to $299.5 million from $281.3 million a year ago. Organic revenues grew 6% year over year. Adjusted operating income rose 25.2% to $63.0 million compared with $50.3 million in the same quarter a year ago. Adjusted operating margin improved 320 bps to 21.0% in the quarter.

Within Human Health, diagnostics business contributed significantly to organic revenues growth, primarily driven by demand for the company's newborn screening and infectious disease solutions and strength in emerging markets.

Revenues from Environmental Health increased 3.8% to $232.4 million from $224.0 million in the same quarter a year ago. Organic revenues posted a 4% rise during the quarter. Adjusted operating income rose 11.6% to $26.0 million from $23.3 million in the first quarter of 2013 while adjusted operating margin expanded 80 bps to 11.2% in the quarter.

Within Environmental Health, organic growth was driven by continued strength in the services offering which moved up in low double digits during the quarter.

Margins

Adjusted gross profit rose 4.1% to $249.6 million from $239.8 million in the prior-year quarter. However, adjusted gross margin declined 50 basis points (bps) to 46.8% in the quarter. Gross margin was negatively impacted by higher service revenue mix, initial OneSource startup cost related to a number of new contracts and foreign exchange headwinds in the quarter.

Adjusted operating earnings increased 23.1% to $78.4 million in the quarter from $63.7 million in the first quarter of 2013. Adjusted operating margin expanded 210 bps to 14.7% from 12.6% a year ago.

Adjusted selling, general and administrative (SG&A) expenses remained flat at $142 million in the reported quarter. Adjusted research and development (R&D) expenses declined 14.1% to $29.3 million in the quarter. SG&A expenses and R&D expenses, as a percentage of sales, declined 140 bps and 120 bps respectively, thus contributing to operating margin improvement.

Financial Position

PKI had cash and cash equivalents of $224.1 million as of Mar 30, 2014, a significant increase of 78.0% from $125.9 million as of Mar 30, 2013. Long-term debt (including current portion) declined approximately 9.5% to $929.5 million as of Mar 30, 2014 from $1,026.6 million as of Mar 30, 2013. Consequently, debt-to-capitalization ratio decreased 450 bps to 31.4% from 35.9% a year ago.

In the first quarter of 2014, cash flow from operating activities increased more than six-fold (511.7%) to $67.9 million from $11.1 million in the prior-year quarter. Capital expenditures almost halved (49.1%) to $6.0 million from $11.8 million in the first quarter of 2013.

Guidance

For the second quarter of 2014, PKI expects adjusted earnings per share in the range of 57 to 59 cents, which represents growth of 12 to 16% from prior-year quarter. The current Zacks Consensus Estimate of 61 cents lies above the guided range. Adjusted revenues are expected in the range of $565 to $575 million. The current Zacks Consensus Estimate of $572 million lies within the guided range.

For 2014, PKI expects reported earnings per share in the range of $1.91 to $1.95. On an adjusted basis, PKI raised its forecast for earnings per share to the range of $2.42 to $2.46 from $2.40 to $2.45. The current Zacks Consensus Estimate of $2.44 lies within the guided range.

Our Take

We are impressed with PKI's earnings beat for the first quarter of 2014 as well as its improved earnings guidance for 2014.

PKI reported strong operating results for the first quarter and continues to execute well across several product lines aided by rebounding markets and cost containment efforts. The company ended the quarter with a healthy financial position as reflected by an improved cash balance as well as decreasing debt-to-capitalization ratio.

Though emerging markets like China represent immense opportunities, PKI faces flat growth in the European market. It continues to face a higher tax rate as well as incremental foreign currency headwinds. Nevertheless, with an increased focus on product innovations and improving end market trends, PKI has a potential upside going forward.

Currently PKI carries a Zacks Rank #3 (Hold). Other players in the scientific instruments industry that look attractive at current levels are Bruker Corporation BRKR, Mettler-Toledo International Inc. MTD and Waters Corporation WAT. All the three stocks carry a Zacks Rank #2 (Buy).