SIAL (MM)

Sigma-Aldrich Corporation (SIAL) announced that it would release its results for the second quarter of 2011 before the market opens on July 26, 2011.

Sigma earned a profit of 97 cents in the first quarter of 2011, outshining the Zacks Consensus Estimate of 89 cents. In the upcoming quarter, the Zacks Consensus Estimate for Sigma is pegged at a profit of $92 cents per share, reflecting an annualized growth of 13.80%. The downside potential of the estimate, essentially a proxy for future earnings surprises, is 1.09%.  

With respect to earnings surprises, the company outdid the Zacks Consensus Estimate in the trailing four quarters. This is reflected in the average earnings surprise of 7.07%, with positive surprises in each of the quarters involved.

First Quarter Review

Sigma’s sales in the first quarter of 2011 were $632 million, increasing 10% year over year and outperforming the Zacks Consensus Estimate of $607 million. Excluding a 2% impact from currency exchange rates and 1% from acquisitions first- quarter organic sales growth was 7%.  

First-quarter sales for the company's Research business grew 6% on a currency-adjusted basis, driven by research initiatives in analytical chemistry, biology, traditional chemistry and materials science, coupled with a 2% acquisition benefit to expand its analytical chemistry offering.

Revenues in the Research business surged to $452 million versus $420 million in the year ago quarter and shot up 4% on an organic basis, driven primarily by growth in the Asia Pacific-Latin American markets.

First-quarter sales for the company's Specialty Fine Chemicals (SAFC) business grew 2% on a currency-adjusted basis, as sales of Supply Solutions, Bioscience and Hitech products reflected stronger demand. SAFC posted revenues of $180 million -- an increase of $28 million over the prior year and reflecting an organic growth of 16%.

The operating income margin in the first quarter was 26.4%. Gross margin of 53.2% was up 70 basis points over the 2010 level.

In the first quarter of 2011, net cash provided by operating activities was $151 million flat versus the prior year quarter. Free cash flow was $131 million comparable with the first quarter of 2010. Capital expenditure was $18 million flat versus the prior year quarter.

Agreement of Estimate Revisions

None of the analysts out of the 11 covering the stock for the second quarter of fiscal 2011 made an upward or downward revision in the last 30 days or last 7 days.

Magnitude of Estimate Revisions

The second quarter 2011 estimate remained flat at 92 cents per share in the last 7 days and the last 30 days. However, 90 days ago it fell by 4 cents to 88 cents per share. The Zacks Consensus Estimate for the second quarter is 13.80% higher than the year-ago profit of 81 cents per share.

Our Take

St. Louis, Missouri-based Sigma-Aldrich Corporation is a leading life sciences and high technology company. It develops, manufactures and distributes various biochemicals and organic chemicals.

Apart from acquisitions, in order to enhance its growth, Sigma-Aldrich plans to increase its focus on marketing, business development, R&D, full leverage of its sales force and continue with its efforts to improve process and operations management.

For full-year 2011, the company reiterated its organic sales to grow in the mid-single digit range. The company anticipates that this organic growth, along with benefits from currency and acquisitions would drive overall growth to low double digits.

The company increased its diluted adjusted EPS outlook for 2011 to a new range of $3.60 to $3.75 (excluding the impact of restructuring and other extraordinary special charges) higher than the previous expectation of $3.45 to $3.60.

The company is en route to execute its strategic initiatives to drive sales of its Research business and to deliver high single digit organic growth in SAFC for the full year and enhance the e-commerce and Asia Pacific-Latin American market sales.

However, rising costs remain a key concern. We are concerned with higher SG&A expenses, which are escalating due to a pick-up in sales force additions and continued marketing programs.

We believe operating expenses will soar as the company increases discretionary spending on items such as advertising, which would hamper Sigma’s operating margin. Although Sigma Aldrich foresees an improvement in operating margin, driven by internal efficiency programs that the company plans to execute through 2014, we believe much of it would be offset by a higher investment in R&D, geographical expansion and e-commerce.

We currently maintain a Zacks #4 Rank (short-term Sell recommendation) on Sigma and a long-term Neutral recommendation.

Sigma-Aldrich faces stiff competition from Bayer AG (BAYRY) and privately held companies Brenntag AG and VWR International, LLC.

 
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