Zacks_Analysts' Blog : PerkinElmer Sails Past Estimates - Analyst Blog

PerkinElmer (PKI) reported second-quarter fiscal 2011 adjusted (excluding one-time expenses) earnings per share of 42 cents, sailing past the Zacks Consensus Estimate of 40 cents and the year-ago earnings per share of 33 cents. The results surpassed the company’s prior guidance of 38–40 cents.

Net income from continuing operations (as reported) dropped 50.5% year over year to $28.6 million (or 25 cents a share) in the reported quarter from $57.6 million (or 40 cents a share) in the prior-year period.

Revenues

Sales from continuing operations were $479.5 million in the reported quarter, up 14% year over year (up 6% on an organic basis), surpassing the Zacks Consensus Estimate of $477 million.

Segment-wise Revenue

Revenues from the Human Health segment were $219.2 million, up 11% (up 2% on an organic basis) year over year. Sales from the Environmental Health segment were $260.2 million, up 16% (up 9% on an organic basis).  

Margins

Adjusted gross margin was 47.1% in the reported quarter, slightly below 47.4% in the prior-year quarter. Adjusted operating margin was 14.1%, higher than 13.3% in the year-ago period.  

Adjusted operating margin at the Human Health segment was 19.8%, down 70 basis points (bps) year over year. Adjusted operating margin at the Environmental Health segment was 13.4%, higher 240 bps year over year.

Balance Sheet

Cash and cash equivalents were $395.2 million, as of July 3, 2011, higher 83.3% year over year. Long-term debt, excluding minor short-term borrowings, stood at $671 million, up 8.2% year over year.

Outlook

The company has updated its adjusted earnings per share forecast for fiscal 2011, to a higher range of $1.64 to $1.68 (earlier $1.62 to $1.67). Organic revenue is still expected to increase in the mid single-digits.

PerkinElmer has established itself as a market leader, particularly in the genetic screening segment, and holds one of top two market share positions in several important subsets of the life sciences technology and genetic screening businesses.

It, however, operates in a highly competitive industry characterized by rapid technological change and evolving industry standards. As a result, the company must make large investments in R&D in order to maintain a competitive pipeline. PerkinElmer competes with Thermo Fisher Scientific (TMO) among others.

The company continues to execute well across all its product lines aided by rebounding markets and cost containment efforts. Its transfer of select manufacturing to China has expanded operating margins. PerkinElmer has increased its productivity and improved product mix in favor of higher value added products. This has led to higher operating margins.

PerkinElmer's exposure to poor end market visibility might result in a relatively unattractive risk-reward trade-off for the stock. Our Neutral recommendation is supported by a short-term Zacks #3 Rank (Hold).