LIFE Beats 4Q Rev, Misses EPS

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Life Technologies Corporation (LIFE) reported earnings per share (EPS) of 63 cents in the fourth quarter of fiscal 2012 compared with 51 cents in the year-ago period. However, after taking into account certain one-time items adjusted EPS came in at $1.11, in line with the Zacks Consensus Estimate, but was 5.7% below the year-ago quarter’s adjusted EPS. The full-year adjusted EPS came in at $3.98, matching the Zacks Consensus Estimate yet again, but was down 7.3% from the year-ago result.

Revenues declined 1.1% year over year on a reported basis. However, the year-ago quarter considered the impact of a licensing settlement, charges on a discontinued product and purchase accounting related adjustments, totaling $40.1 million. After adjusting for these one-time items, revenues in the reported quarter increased 3% year over year (up 4.5% at constant exchange rates or CER) to $999 million and surpassed the Zacks Consensus Estimate of $990 million. Fiscal 2012 revenues were $3.79 billion, almost in line with the Zacks Consensus Estimate and up 2% (2.2% at CER) compared with the prior-year result.

On a regional basis, during the quarter, Europe witnessed revenue growth of 5%, Asia-Pacific witnessed revenue growth of 18% and Japan witnessed revenue growth of 6%, while the Americas recorded a flat year-over-year revenue.

At CER, year-over-year revenue growth came on the back of a substantial hike in the Ion Torrent business, with continued strong demand for the personal genome machine (PGM) and the Ion Proton systems.Moreover, in the quarter, the company successfully expanded its international footprint, with a special focus on the high growth and emerging markets.

Segments

The three divisions of Life Technologies, viz. Research Consumables, Genetic Analysis and Applied Sciences recorded revenues of $409 million (up 2% year over year; up 4% at CER), $401 million (up 2%; up 4% at CER) and $190 million (up 8%; up 10% at CER), respectively, during the quarter.

Research Consumables witnessed growth in cell culture products, benchtop instruments and sample prep products, while Genetic Analysis experienced growth in the Ion Torrent franchise including the Ion Proton System and the Ion PGM benchtop instruments, partially offset by a decline in SOLiD instrument sales and in qPCR royalty revenue. At Applied Sciences, there were strong sales of BioProduction and Forensics products.

Margin Trends

On a reported basis, adjusted gross margin, during the reported quarter, expanded 279 basis points (bps) to 63.1%. This upside was primarilydriven by manufacturing productivity, partially offset by a higher mix of instrument sales and unfavorable currency rates.

The company recorded operating expenses (reported basis) of $348.3 million, up 2.5% year over year with a 6.0% rise in selling, general and administrative expenses,partially offset by a 7.2% decline in research and development expenses. Life Technologies, during the quarter, recorded a 150 bps expansion in adjusted operating margin to 28.2%.

Balance Sheet

Life Technologies exited the fiscal with $276.4 million in the form of cash and short-term investments, lower than $882 million at the end of fiscal 2011.

Free cash flow for the quarter was $173 million ($177 million at the end of the prior quarter), while cash flow from operating activities were $221 million and capital expenditure was $48 million. The company’s debt burden declined to $2.4 billion (including senior notes of $2.3 billion plus some short-term debt) from $2.75 billion at the end of fiscal 2011.

Guidance

Life Technologies provided its fiscal 2013 guidance. The company anticipates revenue growth of 3%–5% over 2012 revenues of $3.8 billion, with an expected increase in the Ion Torrent franchise sales for the third consecutive year and expansion in applied and emerging markets.The current Zacks Consensus Estimate for revenues of $3.9 billion remains below the expected range. The company also expects 2013 adjusted EPS in a range of $4.30−$4.45. The Zacks Consensus Estimate for earnings  of $4.35 per share remains within the guidance range.

A continuous share buyback program will also aid it by lowering the outstanding share count. In 2012, 13.8 million shares were repurchased for approximately $635 million.Additionally, year-to-date, the company already repurchased 2 million shares for $105 million.

Our Take

Economic uncertainties lowering discretionary spending and fluctuations in currency were the major headwinds for Life Technologies during the reported quarter.

However, over the last two years, the company has been focused on creating an optimal portfolio of products through innovation and acquisition, the latest being Ion Torrent. We are also encouraged by Life’s strategy to strengthen its presence in the high growth markets such as Latin America, the Middle East, China and India. Over the next few years, Life’s focus on developing industry-leading franchises in high-growth technology areas, applied markets and emerging geographies will be the key drivers of long-term growth. The company now carries a Zacks Rank #3 (Hold).

While we prefer to remain on the sidelines for Life Technologies, other medical device stocks worth a look are Cyberonics Inc. (CYBX), Merit Medical Systems, Inc. (MMSI) and ResMed Inc. (RMD). All these stocks carry a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on LIFE

Read the Full Research Report on RMD

Read the Full Research Report on CYBX

Read the Full Research Report on MMSI

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