Pall Corp. Underperforms Estimates

Zacks

Pall Corporation (PLL) reported third-quarter fiscal 2012 earnings per share from continuing operations of 60 cents, below the Zacks Consensus Estimate of 79 cents but above the prior-year earnings per share of 52 cents.

Revenue

Total revenue in the quarter inched up 1% year over year to $715.2 million, including negative impact from foreign currency translation of 1.6%. Sales from continuing operation was $658 million, up 2.5% in terms of local currency. Sales in the quarter were affected by weakness in the Eurozone and ERP transition issues. Shipments of certain consumables were delayed due to ERP transition issues.

Segment Revenue

Segment wise, the company’s revenue in the Life Sciences segment climbed 4.0% in local currency to $318 million and Industrial segment was up 1.2% in local currency to $340.0 million.

Within Life Sciences, Biopharmaceuticals sales were up 4.4%, Food & Beverage sales increased by 7.1% while Medical sales declined by 1.5%. Within the Industrial segment, Process Technologies sales increased by 4.7%, Aerospace sales inched up 1.0% while sales of Microelectronics declined by 7.8%.

Margin

Gross margin in the quarter was 50.8% compared with 51.5% in the second quarter of fiscal 2011.

Life Sciences operating margin was 23.7% compared with 25.2% and Industrial segment operating margin was 11.6% compared with 13.8%.

Balance Sheet and Cash Flow

Cash and cash equivalents were $535.9 million with long-term debt of $487.9 million and shareowner’s equity of $1,663.8 million.

Net cash flow from operations was $326.4 million compared with $281 million in the prior-year quarter.

Outlook

The weak macroeconomic condition, especially in Europe, is a matter of concern. Based on this concern, the company expects earnings per share to be approximately $3.10 and earnings from continuing operations to be $2.72 in fiscal 2012. For fiscal 2013, the company expects to see low-single-digit organic sales growth, aided by increases in Asia and the Americas, which was more than offset by a decline in Europe.

Pall’s Aeropower business derives significant benefits from the emerging markets, particularly in Asia.  Key drivers include increasing passenger air miles flown, a ramp-up in US military budgets, new military and commercial aircraft, and demand for new aircraft and mobile construction equipment. In the long run, Pall will likely benefit from several secular trends, such as global infrastructure growth, increasing demand for water filtration systems and continued steady growth in the medical and pharmaceutical markets.

However, changes in product mix and product pricing may impact the company’s operating results, particularly with the expansion of the systems business. The company experiences significantly longer sales cycles in systems business with less predictable revenue and no certainty of future revenue streams from related consumable product offerings and services.

Based in New York, Pall Corporation was incorporated in July 1946. Along with its subsidiaries, Pall Corporation is a leading supplier of filtration, separation and purification technologies, and uses its engineering capability and fluid management expertise.

We currently maintain our Neutral rating on Pall Corporation for the long term, with a Zacks #3 Rank (short-term Hold recommendation) over the next one-to-three months.

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