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Sigma-Aldrich Beats Estimates in Q3

Zacks Equity Research

Lab chemical and life sciences company Sigma-Aldrich Corp. (SIAL) posted adjusted earnings (excluding restructuring charges) of $1.05 per share in the third quarter of 2013, above the year-ago earnings of 94 cents.

The results beat the Zacks Consensus Estimate of $1.00 per share. The adjusted earnings were positively impacted by non-recurring tax benefits of $4 million.

Profit, as reported, rose roughly 6.3% year over year to $119 million (or 98 cents per share) in the quarter from $112 million (or 92 cents per share) a year ago.

Revenues and Margins

Net sales increased 4% year over year to $664 million in the reported quarter, beating the Zacks Consensus Estimate of $661 million. Organic sales growth in the quarter was 5%, while foreign exchange translation had a negative impact of 1%.

Adjusted operating margin for the third quarter was 25.3% compared with 25% recorded a year ago. Adjusted operating margin in the reported quarter excludes restructuring charges of $10 million related to the closure of a Life Science Products' manufacturing site in Europe.

Segment Highlights

Research Chemicals sales were $341 million, up 3% on an organic basis. The year over year sales  increase was supported by solid sales gains in EMEA (Europe, Middle East and Africa) and APAC (Asia Pacific) regions. Organic sales growth through the dealer network was in the high single-digits. Pharma organic sales growth was in the mid single-digits continuing a five-quarter trend of sequential improvement.

Applied business unit’s sales amounted to $154 million, up 4% from the prior-year quarter. The organic sales gain was driven by mid single-digits growth in Diagnostics and Testing division. However, Industrial sales growth was in the low-to-mid single-digits.

The ISO 13485 standard certifications for several facilities in the regulated diagnostics markets helped in expanding segment offerings. The company has also entered into a partnership with Paragon Scientific to expand its portfolio of certified reference materials in the applied markets.

Sales from the SAFC Commercial segment were $169 million, up 8% from the third quarter of 2012 on an organic basis. Sales were driven by strong double-digit gains in Life Science Products and Life Science Services segments. Contract manufacturing and biopharma materials also posted strong double-digit rise. However, Hitech sales declined in the high single-digits. The industrial cell culture media business performed well in the quarter.

Financial Health

Sigma-Aldrich’s cash and cash equivalents stood at $688 million as of Sep 30, 2013, compared with $589 million as of Sep 30, 2012, up 17%. Long-term debt remained flat year over year at $300 million. Debt to capital ratio was 13% as of Sep 30, 2013, compared with 22% as of Sep 30, 2012. For the first nine months of 2013, operating cash flow jumped 28.3% year over year to $486 million.

The company repurchased 0.7 million shares during the third quarter for $59 million. It expects to continue to buyback shares to offset dilution associated with stock-based compensation.


Sigma-Aldrich reiterated its overall organic sales growth guidance for 2013. The company expects low-to-mid single-digit organic sales gain in 2013. However, Sigma-Aldrich altered its adjusted earnings per share guidance from the previous range of $4.05 to $4.15 to a new band of $4.08 to $4.15 for the year. The lower end of the range has been raised due to favorable tax benefits achieved in the third quarter of 2013.  

Free cash flow expectations for the full year have also been revised by Sigma-Aldrich, which is now expected to exceed $450 million, a $20 million increase from the prior guidance of $430 million. Capital expenditures is expected to be around $110 million. Operating cash flow has been projected to exceed $560 million. Effective tax rate is expected to be about 27% in 2013.

For the remainder of 2013, Sigma-Aldrich is expected to move forward to capital deployment for mergers/acquisitions, dividends and share repurchases to generate long-term shareholder value. Sigma-Aldrich also envisions its customer-focused business units and initiatives which were taken last year to drive earnings growth in 2013.

Sigma-Aldrich currently maintains a Zacks Rank #3 (Hold).

Ferro Corp. (FOE) and Globe Specialty Metals, Inc. (GSM), which belongs to the specialty chemical industry, carry a Zacks Rank #1 (Strong Buy).

OM Group Inc. (OMG), another company in the specialty chemical space, will announce its third quarter results before the opening bell on Nov 1.

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