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Earnings Preview: Pall Corporation

Zacks Equity Research

Pall Corporation (PLL) is slated to release its third-quarter fiscal 2012 earnings results on Wednesday, June 6, 2012. The current Zacks Consensus Estimate for third-quarter earnings per share (EPS) is 79 cents, representing annualized growth of 10.19%.

Pall’s earnings were above the Zacks Consensus Estimates in the second and first quarters of fiscal 2012 and in the fourth quarter of fiscal 2011. Earnings, however, missed the forecast in the third quarter of fiscal 2011. The company’s average positive earnings surprise for the trailing four quarters is 1.08%.

Second Quarter Highlights

Pall Corporation reported second-quarter fiscal 2012 earnings per share from continuing operations of 76 cents, below the Zacks Consensus Estimate of 82 cents, but above the prior-year earnings per share of 68 cents.        

Total revenue in the quarter increased by 8.2% year over year to $698 million, including a positive impact from foreign currency translation of 0.2%. Orders, in terms of local currency, increased by 3.4%. Revenue, in the quarter, was aided by increased sales in both Life Sciences and Industrial segments. Emerging markets were a good contributor, with sales rising by 20%.

Segment-wise, Life Sciences revenues climbed by 7% in local currency to $357.2 million while Industrial revenues rose 9.2% in local currency to $340.8 million.

Agreement of Estimate Revisions  

In the last 7 days, none of the analysts has increased or decreased their estimates. However, in the last 30 days, one analyst decreased the estimate for the third and fourth quarters of fiscal 2012 and for full year fiscal 2012, while another increased the estimate for full year fiscal 2013.

The analysts believe that in the long term, Pall will likely benefit from several secular trends, such as global infrastructure growth, increasing demand for water filtration systems, and continued steady growth in medical and pharmaceutical markets. 

However, their optimism regarding the company’s long-term potential is tampered somewhat by several near-term concerns, including depressed demand in industrial end-markets, volatility in gross margin, and ongoing restructuring charges.  Although PLL’s cyclical end markets are on the road to recovery, a rebound is expected to be slower than originally anticipated.

Magnitude of Estimate Revisions  

Consensus earnings estimates have hit a plateau over the last 7 days for the third and fourth quarters of 2012 as well as for fiscal 2012 and 2013. In the last 30 days, fourth quarter 2012 estimate has decreased by a penny to 89 cents while the estimate for fiscal 2013 has increased by a penny to $3.54.

Our Take  

The company is deriving significant benefit from the emerging markets, including Latin America, MENA, China, India and Southeast Asia. Though the company continues to see business disruptions in Japan in the short term, on a long-term basis, it sees opportunities with the world’s third largest economy as they rebuild.

Pall will further 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, the company derives a major portion of its revenue from outside the U.S. Operating results may be materially affected by changes in foreign currency rates. During the second quarter Medical sales (a sub-component of Life Sciences) declined by 0.6% while order declined by 6%. Hospital sales were also hit by 10% owing to inventory reductions at customers and supply related issues.

Pall Corporation is a leading supplier of filtration, separation and purification technologies, using its engineering capability and fluid management expertise, proprietary filter media and other fluid clarification and separations equipment for the removal of solid, liquid and gaseous contaminants from a wide variety of liquids and gases.

We continue to maintain a Neutral rating on Pall Corporation System for the long term. The company has a Zacks #3 Rank (Hold recommendation) over the next one-to-three months.

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