SIAL (MM)

Sigma-Aldrich Corporation (SIAL) reported fourth quarter 2011 earnings of 91 cents per share, surpassing the Zacks Consensus Estimate of 89 cents. Results also came in better than the earnings of 83 cents in the year ago quarter.

Considering a one time tax charge of 2 cents per share in the quarter, earnings came in at 89 cents per share versus 76 in the year-ago quarter. For the full year 2011, Sigma reported earnings of $3.76 per share, an increase of 14% year over year and exceeded the Zacks Consensus Estimate of $3.74 per share.

Revenue

Reported sales for the reported quarter were $610 million, up 5% from $582 million in the prior year quarter. However, the sales number missed the Zacks Consensus Estimate of $630 million. Acquisitions contributed 2% to sales growth. For the full year, sales grew 10% over the previous year to $2.5 billion.

The company’s Research Chemicals Business posted sales of $425 million in the reported quarter compared with $411 million in the year-ago quarter. Research business in the U.S was adversely affected by the challenging economic conditions and funding uncertainties in the early weeks of the fourth quarter. Organically, the business contributed 1% to sales growth especially driven by growth in the Asia Pacific–Latin American region.

SAFC posted revenues of $185 million in the quarter versus $171 million in the comparable year-ago quarter. Sales reflected an organic growth of 7% and the quarter witnessed highest sales in the business in 2011.

The Hitech business performed consistently well throughout the year and the custom pharmaceutical business delivered better results than it had in the previous quarters. The industrial media business sales, however, were in line with the previous year quarter and reflected the impact of timing of customer purchases.

Acquisition

In February 2012, the company completed the acquisition of BioReliance Holdings Inc., which provides biopharmaceutical testing services to pharmaceutical, biopharmaceutical, diagnostics and other life science customers. As both the companies have the same customer base, and Sigma is also a global leader in the same sphere of business as Bio Reliance, the acquisition will be highly beneficial to Sigma.

Financial Position

Net cash provided by operating activities at the end of December 31, 2011 was $495 million versus $523 million at the end of December 31, 2010. The company increased its working capital in the year 2011 in order to maintain high levels of inventory and to increase its service levels and support the higher sales growth rates in the Asia Pacific-Latin American region.

Capital expenditures at the end of December 31, 2011 were $104 million compared with $99 million at the end of December 31, 2010.

During 2011, free cash flow of $391 million was used primarily to pay $86 million to shareholders in the form of dividends and return another $134 million through share repurchases and $75 million to fund acquisitions. The company's debt-to-capital ratio was 19% as of December 31, 2011 versus 21% as of December 31, 2010.

Outlook

The company expects the Research Business to continue to face economic challenges due to uncertainties in the U.S. and Europe. Sigma forecasts its new programs in the analytical chemistry, biology, traditional chemistry and materials science sectors to achieve low to mid-single-digit organic sales growth for in 2012.

It further expects organic growth rates to be in the low-single-digits in the first half of 2012 and mid-single-digits in the second half. Research growth rates are expected to improve in the second half of 2012, led by stronger growth in the Asia Pacific-Latin American region.

For SAFC business, the company expects low- to mid-single-digit growth in the first half of the year and low-double-digit-growth in the second half due to additional capacity in China and Taiwan.

Adjusted earnings per share forecast for 2012 (excluding restructuring charges, transaction costs associated with the BioReliance acquisition and other one time charges) is in the range of $3.90 to $4.05. The acquisition of BioReliance is expected to add approximately 5 cents to 7 cents per share to the diluted EPS in 2012.

Free cash flow for 2012 is forecast to be above $400 million. Net cash provided by operating activities is expected to be about $525 million. Capital expenditures are anticipated to be approximately $125 million.

Our Take

Apart from acquisitions, Sigma-Aldrich is focused on marketing, business development, R&D while continuing with its efforts to improve process and operations management.

Rising costs remain a key concern for Sigma. However, Sigma continues with its efforts to cut costs. The company also faces stiff competition from Bayer AG (BAYRY).

Currently, the company retains a Zacks #3 Rank, which translates into a short-term Hold recommendation. Also, considering the fundamentals, we maintain a long-term Neutral recommendation on the sahres.

 
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